Will Biden’s CFPB Regain Its Edge In A Post-Trump Era?
Jan 13, 2021 | Republished by LIT: Jan 15, 2021
President-elect Joe Biden knows the Consumer Financial Protection Bureau (CFPB).
The agency was created during the Obama administration’s first term—when Biden was vice president—as the Democratic majority in the House and Senate started cleaning up the wreckage of the 2008 financial crash. It was officially launched in 2011 as part of the Dodd Frank Act.
The CFPB quickly became known for its investigations of consumer complaints and hefty fines issued against lenders and other companies that violated financial regulations. It levied a string of enforcements against for-profit colleges, including schools that had closed suddenly, leaving students with student loan debt for degrees they couldn’t complete. It also issued a massive $100 million fine against Wells Fargo for secretly opening unauthorized accounts.
But once the CFPB was firmly established as financial watchdog, Donald Trump was elected president. With him came a Republican majority in Congress and an affinity for protecting American businesses that often didn’t align with the bureau’s mission of ferreting out bad actors.
The Trump administration started to dismantle the CFPB. Now it’s a matter of whether Biden’s team will prioritize putting it back together again.
The Downsizing of the CFPB under Trump
The CFPB turns 10 this year, but it’s still new compared to most government agencies. For example, the Federal Trade Commission (FTC) has been around for over a hundred years.
The CFPB’s mission was to centralize enforcement of financial industry regulations while also educating and protecting consumers against unscrupulous players. The agency can investigate and fine bad actors for regulatory violations, and uses the fine money to compensate the victims of wrongdoing. In fiscal year 2019, the CFPB returned $777 million to consumers.
However, “there are still some questions about where [the CFPB’s] authority starts and ends,” said Stephen Brincks, a finance professor at San Diego State University’s Fowler College of Business.
“Republicans during the Trump era have argued that the agency went too far, and it needed to roll back some of the actions taken,” Brincks said. Critics of the CFPB and Dodd-Frank legislation say that tight regulations make it harder for lenders to extend credit to customers, which hampers their ability to do business, he said.
The Trump administration has scaled back the power of the CFPB, primarily under the leadership of acting director Mick Mulvaney from 2017 to 2018. Mulvaney loosened restrictions and fired the agency’s advisory board. And the agency has filed fewer and smaller enforcement actions against financial companies during the Trump years than it did during Obama’s terms.
When Mulvaney joined the agency, he explained in a Wall Street Journal op-ed that the bureau would be examining the ways it investigated claims of wrongdoing. “When it comes to enforcement, we will focus on quantifiable and unavoidable harm to the consumer,” he wrote. “If we find that it exists, you can count on us to pursue the appropriate remedies vigorously. If it doesn’t, we won’t go looking for excuses to bring lawsuits.”
When Kathy Kraninger was named to the agency’s top role in 2018, she brought a focus on consumer education ahead of enforcement. “Empowering consumers to protect and further their own interests is where our efforts begin,” she stated in an early 2020 report to Congress.
Kraninger’s tenure at the bureau has resulted in more enforcement actions than Mulvaney’s, but the impact of those actions has been diminished. Under the direction of Richard Cordray in fiscal year 2014, the CFPB issued fines of more than $4 billion on 23 enforcement cases, per analysis by Compliance Week. In fiscal year 2019, the CFPB enforced 22 cases, but only for a total of $780 million in settlements. Some of the fines issued in 2019 were for as little as a single dollar.
Small fines don’t give unscrupulous companies much reason to change their practices. “There’s no incentive to change for financial institutions unless you are going to make a big dent on their bottom line,” Brincks said.
Biden’s Initial Consumer Protection Focus: The CARES Act
Before the Biden administration launches into any attempts to make sweeping changes to the CFPB’s oversight, there will be one big issue to take care of: the implementation of the CARES Act signed in March 2020.
The CARES Act stipulated that consumers seeking payment assistance from lenders won’t get stuck with unrealistic and unaffordable payment plans once they resume making payments. While forbearance periods for federal mortgages and federal student loans are still in effect, and eviction moratoriums extended, it’s likely these programs will wind down at some point in 2021.
Brincks said that monitoring for abuses of the CARES Act is likely to be the most pressing concern for the CFPB in the first six months of the new administration.
Biden Picking Up Where Obama’s CFPB Left Off
Once CARES Act maintenance is out of the way, Biden’s CFPB may pick up the torch on two issues that were a focus of the Obama-era CFPB: payday lending and student loans.
In July 2020, the CFPB revoked part of a 2017 rule that required payday lenders to prove their customers could afford to repay their loans, similar to the “ability to repay” rule used by mortgage lenders.
Nixing the rule, according to consumer advocates, will undo changes that had already been put into place to ensure safer lending practices, even though enforcement had yet to begin. Biden condemned the revocation, calling it a “windfall for predatory lenders”, so it’s likely his CFPB may try to reinstate the rule.
Student lending practices may also be an early focus of the Biden-era CFPB, as the incoming administration has made college affordability and lending transparency a major priority. “[The CFPB] put a lot of effort into looking at for-profit colleges and student loans that penalized consumers,” Brincks said. “With [Biden’s] focus on student loan debt, there’s definitely some potential for action there.”
But don’t expect the agency to immediately swing left as soon as Biden enters the Oval Office, Brincks warned. “Expanding the scope of the agency is more long term,” he said.
The Battle over the Director Role
Biden’s ability to strengthen the CFPB will depend on who’s in charge of the agency.
The Trump administration has tried to argue that the CFPB is unconstitutional because it gives too much power to its single director. The Supreme Court ruled in 2020 that the bureau itself is constitutional, but that the director can be fired at will by the president.
CFPB director Kathy Kraninger’s term doesn’t end until 2023, but it’s likely that Biden will want to remove her shortly after taking office. But although the Supreme Court ruled that the president may fire the CFPB director at any time, the GOP may fight the replacement of Kraninger.
There’s still a legal debate on whether a new appointee to the CFPB director role needs to be confirmed by the Senate, Brincks explained. Now that Democrats hold a majority in the Senate, it’s more likely that Biden’s pick for a replacement could get enough votes for confirmation—but the uncertainty over the overall procedure indicates it still could take some time for a leadership transition to be completed.